Class 5: Internal Organizational Environment and Resource-Based View

MG106 Strategic Management

José Ignacio González Rojas
j.i.gonzalez-rojas@lse.ac.uk

London School of Economics and Political Science

June 30, 2025

Today’s Investigation 🔍

Four Questions to Explore

1️⃣ Root causes: What created these problems? How serious?

2️⃣ Pressure sources: SPH system or management behavior?

3️⃣ Memo effectiveness: Does Exhibit 3 clarify sell/non-sell time?

4️⃣ System redesign: How would you fix compensation/policies?

Framework: Resource-Based View + Internal Organizational Environment

Task: 15 minutes to discuss ALL questions 🕐

Go! Analyze the System 🚀

Think about assets and organizational design

Question 1: Root Causes 🔍

The SPH System Mechanics

Understanding Sales-Per-Hour

Basic Formula:

  • SPH = Sales ÷ Hours
  • Target: $140/hour
  • Base: $9.45/hour
  • Commission: 6.75%

Example: $8,000 weekly sales

Hours SPH Pay Result
40 $200 ✅ $540 Higher rank 📈
50 $160 ✅ $587 Lower rank 📉

Why would employees choose less pay?

The System’s Unintended Consequences

Pressures Created by SPH

Implicit Pressures 🤐

  • Peer rankings posted publicly
  • Better shifts for high SPH
  • “Team player” expectations
  • Promotion opportunities
  • Fear of termination

Explicit Pressures 📢

  • “Don’t clock meetings”
  • Managers erase hours
  • Work deliveries off-clock
  • Write thank-you notes at home
  • Stock during “personal time”

Result: Employees working 8-10 hours/week unpaid

Is this a system design flaw or implementation problem?

How Serious Are These Problems?

The Escalating Crisis

  • Union complaints: $2M+ in claims
  • State ruling: Systematic wage violations
  • $15M reserve: Against earnings
  • Class action suits: 50,000 employees
  • Wall Street Journal: Front page exposé
  • 60 Minutes: National TV coverage

From local dispute to national scandal

Reputation built over 90 years at risk

Question 2: Inappropriate Pressures? 💪

Mapping the Pressure Points

Is the System or Management to Blame?

Key Question: Can you separate system from implementation? 🤔

The Cultural Contradiction

What Nordstrom Wanted vs. What They Got

Intended 🎯 Reality 😰
Customer “heroics” Working off clock
Entrepreneurial spirit Gaming the system
Team collaboration Internal competition
Service excellence “Sharking” sales

When measurement undermines mission

Question 3: The Memo Analysis 📄

Exhibit 3: Clarifying “Sell” vs “Non-Sell” Time

Memo Promise: Clear categories, fair payment

Reality: Every activity still ambiguous

Activity Says Does
Delivery Non-sell ✅ “Service”
Thank-yous Non-sell ✅ At home
Stock work Non-sell ✅ Unpaid
Meetings Non-sell ✅ SPH hit

Result: Nothing actually clarified

Question 4: System Redesign 🛠️

The Internal Organizational Environment

Four Levers for Change

Current State 😟

  • Incentives: SPH-driven fear
  • Structure: Decentralized chaos
  • Culture: Competition > Service
  • People: Burning out

Needed Changes ✨

  • Incentives: Balanced metrics
  • Structure: Clear oversight
  • Culture: Ethical boundaries
  • People: Sustainable practices

All four elements must align

Recommendations for Change

Preserving Excellence While Fixing Problems

Continue What Works:

  • Customer service focus
  • Employee entrepreneurship
  • Performance differentiation

Fix What’s Broken:

  1. Measurement: Balance metrics
  2. Boundaries: Clear work hours
  3. Controls: Prevent manipulation
  4. Culture: Ethical values

Critical: Don’t destroy the entrepreneurial spirit 🎯

Excellence without exploitation?

Resource-Based View: What’s at Stake?

Nordstrom’s True Assets

Tangible Assets 🏢

  • 59 stores
  • Prime locations
  • Distribution systems

Intangible Assets 💎

  • 90-year reputation
  • Customer loyalty
  • “Heroics” culture
  • Employee expertise

Which are harder to rebuild?

Intangible assets take decades to build, moments to destroy

Synthesis: System Alignment 🎯

The Internal Organization Must Reinforce Strategy

Key Principle: When one element misaligns, the entire system fails

Nordstrom’s incentives undermined everything else

Lessons for Strategic Management

What This Case Teaches Us

About Resources 💎

  • Intangible assets are fragile
  • Culture is a strategic asset
  • Reputation takes decades to build
  • Human capital requires care

About Systems 🔧

  • Measurement drives behavior
  • All elements must align
  • Unintended consequences multiply
  • Change requires systemic thinking

The Bottom Line:

Excellence requires alignment between what you measure,
how you organize, and what you value

Epilogue: What Happened?

The Aftermath

  • Employees voted to decertify the union (1991)
  • Nordstrom modified SPH system
  • Company survived and thrived
  • Still known for customer service
  • But the lessons remain…

Today: Nordstrom faces new challenges in digital retail

Can they transform again without losing their soul? 🤔

For Tomorrow 📚

Apple 2010

Read: The Apple case

Questions to consider:

  1. What have been Apple’s competitive advantages?
  2. How favorable is the PC industry for Apple?
  3. How sustainable is Apple’s position in PCs, smartphones, iPads?

Focus on: How resources and capabilities create advantage 🎯